Justin Perry's Mortgage Blog

Today's post is written by guest blogger Samantha Taylor.  For more information about Samantha please see her bio at the end of the post.

The purpose of loan modification is to help the distressed homeowners. A loan modification helps to reinstate loans, reduce the interest rate of the loan, reduce the balance on the existing loans, stop foreclosure proceedings, etc.

General qualification

Homeowners can qualify for a loan modification under the following circumstances.

* Financial hardship: Homeowner has to convince the mortgage lenders that he is going through financial hardship. He has to write a convincing hardship letter. It should contain a brief description of his hardship circumstances.

* Income: Homeowner has to document his income. He has to provide his pay checks, bank statements, award letters, tax returns, etc to the lender.

* Payment affordability: The homeowner has to prove that he can afford to pay the new modified loan. His debt ratio should be between 38% and 52%.

Obama loan modification guidelines

Obama home loan modification program is designed to help the homeowners avoid foreclosure. The homeowners can qualify for this program when they fulfill the following guidelines:

* Primary residence: The property has to be his primary residence. The lenders will verify the occupancy status through documents such as homeowner’s credit report.

* Financial hardship: The outstanding principal balance must be at least $729,750 for a single-unit property. The homeowners have to sign an affidavit of financial hardship and document their income.

* Time: Homeowners can qualify only when the loan has been originated before January 2009. The new modified payment will remain fixed for 5 years.

* Documents: Homeowners have to provide a financial statement, a signed 4506t form, paycheck, and a hardship letter to the lender.

* Trial period: If the homeowner qualifies for the loan modification, then he will be put on a 3 month trial period. The modification will be made permanent only when he makes the payments on time for at least 3 months and meets some document requirements. However, homeowners can qualify for HAFA short sale if they fail to complete trail period.

* Income: Homeowner’s monthly housing payment should be more than 31% of his gross monthly income. He has to prove that he has been unable to make mortgage payment due to a major change in his income.

It has been claimed that more than 1.1 million homeowners have applied for Obama home loan modification program till April 2010. Around 60,000 homeowners have shifted from trial status to permanent status in March 2010. Government has made the document requirements easier to understand in this year. Government has also specified that homeowner’s request has to be acknowledged within 10 days of application.

Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like 'Mortgage that you can afford' , ' Mobile Home Loan with Bad Credit' , and ' How much mortgage can I borrow"?

    This is very important. On all loans (conventional or FHA) with appraisals dated before 3/29 most investors are requiring the original appraiser provide a re-certification of value with photos.

    So what does this mean for you? If you have a closing coming up and the appraisal was done prior to this past Monday you can most likely expect that the appraiser will need to go back out and make sure the property is not under 4 feet of water. I can’t speak for all banks but our closings are not being delayed because of this, however our investors are still requiring that we have this in the file before they will purchase the loan.  With mortgage rates going up recently this could mean the differance between keeping your low interest rate of 5.00% of having the rate expire and going to current market rates of 5.25%+.

Attached is the link to see if your property’s are located in a federal disaster area, as determined by FEMA.

http://www.fema.gov/news/disasters.fema

Please call or email me if you have any questions or if there is anything I can do to help.

A bill has been introduced recently that proposes the Federal Housing Administration require a 5% downpayment up from the current 3.5% buyers need to put down on an FHA home purchase.  There are several other items in the bill but this is by far the biggest change.  

Although it has a long way to go (through the house and senate, and then to the president) the bill has been introduced in Congress which increases the minimum down payment for Federal Housing Administration (FHA)-insured mortgages from 3.5% to 5%. Titled “The FHA Taxpayer Protection Act of 2009” HR 3706 would also prohibit financing appraisals, initial service charges, inspections, other fees or closing costs with any part of an FHA mortgage.

It's my hope that the bill get's shot down.  We need first time homebuyers if we are going to correct the housing market.  By keeping the minimum downpayment for FHA at 3.5% and also extending the first time homebuyer tax credit I think we would be taking a huge step in the right direction.   Of course my opinion is biased but in the big scheme of things the housing market is more important to the economic recovery than issues like executive pay and even health care for the time being.

The FHA has recently made it easier for homebuyers to finance condo projects.  Especially those with fewer than 5 units.  As one of the largest direct endorsed FHA lenders in Massachusetts and New Hampshire this is especially helpful to us and our clients.  Unlike many of our competitors we now have the ability to review condo projects in-house.  Some other highlights from the new FHA changes that are going into place on October 1st 2009 are:

•  Relaxing 10 year warranty policy to   allow high leverage financing
•  Lender delegated authority
•  Relaxing right of first refusal
•  Eliminating 1 year requirement for condo conversions
•  Relaxing need for environmental review
•  Eliminating lender review for site condos

Remember FHA loans limits are currently $523,750 with a 3.5% down payment on a condo or single family residence!!!

Please call or email me if you have any FHA related questions.  

    That is the question I have been fielding from my clients for a month now.  Don't get me wrong,  it's a great question.   But it leads many consumers into a state of "rate lock paralysis."  Many people don't want to lock a rate today out of fear that mortgage rates will be lower sometime in the near future.   There are two things I say to these types of borrowers:

• I remind them about all the clients who missed out in January of 2008 when rates hit 5.00% for only a short while.   I had dozens of clients who could have saved $200,  $300 and even $400 if they had refinanced down to 5.00% but they wanted to "wait for a better rate."  Well,  that better rate never came and it cost some of them $4,000+ in potential savings over the following 12 months.

• Just like when you invest or even belly up to a blackjack table........take some profit!   For example,  if you have a mortgage rate of 6.5% right now on a $300,000 mortgage and today you can lock in an interest rate of 5.00% that is a monthly savings of $286/month!   Most of the mortgage refinance deals I am doing right now come with no closing costs, none.  So why not take the 5.00% and if rates drop lower we can do it again.  There are no closing costs what so ever,  so why not take the sure thing now and lock in the savings and still have the potential to refinance your loan again later with no closing costs?

    Right now I am far too busy to spend time convincing people that refinancing to save $300/month is a good deal and they should lock.  There are plenty of people who are savvy enough to understand the benefits of locking into these low mortgage rates.  So if you or someone you know is just sitting there on the sidelines waiting for that magical 4.5% that the press keeps talking about,   call your local mortgage banker and GET IN THE GAME.  

    I leave you with this thought.  How would you feel if rates went back up to 6.5% tomorrow and never came back down?   Pigs get fed, hogs get slaughtered.   I wish everyone the best while we continue to sail in uncharted water and as always please contact me if there is anything I can do to help.

Cheers.